Can I Deduct Losses From My LLC?

If your LLC is taxed as a sole proprietorship or partnership, losses flow through to your personal tax return — but several rules limit how much you can actually deduct. First, you can only deduct losses up to your "at-risk" amount (what you've actually invested or are personally liable for). Second, if you're not materially participating in the business (working at it regularly), the losses are "passive" and can only offset passive income. Third, the excess business loss rules may limit large losses for high-income taxpayers. If your LLC generates losses year after year, the IRS may question whether it's a hobby rather than a business. A CPA can help you navigate these layered rules.